Report: Civil Contractors Concerned About Pricing, Optimistic About 2023

Dodge Construction Network published its summary outlook of the civil construction industry, based on interviews and surveys with construction contractors and civil engineers. Those who responded reported a surprisingly optimistic outlook for 2023, based largely on the large backlog of projects heading into the new year.

The quarterly reported is compiled using results from an online survey, which was conducted from May 2-26, with contractors and engineers working on active civil projects. Of those who responded, 39% were large contractors with revenues of $50 million and over, 35% were small contractors with revenues of less than $10 million and 26% were mid-size contractors with revenues from $10 million to $50 million. As far as demographics, 37% of respondents are located in the South, 27% in the West, 19% in the Midwest and 14% in the Northeast.

“The contractors this quarter continue to remain optimistic about the flow of work into the market, and their backlog levels continue to be nearly at capacity,” Stephen Jones, senior director of industry insights and research at Dodge Data & Analytics, stated in the report. “Civil engineers, who represent the pipeline of future work, are even more bullish, reporting current backlogs to be 50% over their ideal levels. But the pace of their backlog increases is slightly lower this quarter, suggesting the market may be starting to stabilize.”

Dodge Data & Analytics

Outlook for 2023

When it comes to a backlog of upcoming projects, some reported a leveling off after two quarters of growth. However, most reported working near at-capacity levels. Nearly half, or 41%, said their backlog has increased during the previous six months. About 36% of small contractors reported that their backlogs increased, while 47% of large contractors noted the same.

Echoing other recent economic reports, have high business confidence levels for at least the first two quarters of 2023. The outlook for the next two years is also robust, but at lower levels. While 77% of contractors reported high or very high confidence in the next 12 months, when surveyed in May, 65% reported the same sentiment for the next 24 months. According to Dodge, the share of those who are highly optimistic about work for the next two years grew by four points, “revealing that even more contractors have expectations that the current strong market will continue.”

Dodge Data & Analytics

When it comes to revenue, 50% of large companies, 37% or mid-size companies and 29% of small contractors expect an increase in revenue in the coming year, the report stated. Most of those are expecting an increase in profit margins, as well.

Dodge Data & Analytics

Contractors expecting lower revenue and profit margins, pointed to the following reasons for the possible change:

• Economic downturn reducing the number of private projects (60% of respondents this reason)
• Increased number of competitors bidding projects and pushing down pricing (44%)
• Delays in new projects due to reduced projected public revenue (29%)
• Insufficient public revenue to support new projects (21%)

Dodge Data & Analytics

There are also many reasons revenue and profit margins could increase. Those possible reasons, according to contractors, include:

• Expectations of more work (61%)
• Targeting more profitable work (61%)
• Expectation of increased public funding for infrastructure (55%)
• Expectation of fewer competitors bidding projects (28%)
• More efficient workforce (25%)

Dodge Data & Analytics

Pricing

One of the hot button issues of the past few years, supply chain and other issues have dramatically impacted the price of materials. As has been the case for the past few years, the shortages and high prices have shifted from material to material periodically.

Dodge Data & Analytics

At the start of 2022, contractors were worried about the price of steel and piping. Now, they’re worried about pavement and concrete prices, as well as steel. Concern about the price of lumber has dropped from 35% of contractors saying they were worried about the price of lumber in Q3 of 2021 to 20% in Q3. According to Dodge’s report, the pressure on lumber prices has lessened likely because of challenges in the housing market.

Dodge Data & Analytics

At the end of 2021, 90% of contractors were experiencing project impacts due to supply chain issues and material costs. That has lowered slightly to 67% for Q3 2022. When it comes to concern of future impact, 57% of contractors said that they are worried about cost increases in the next six months, compared to 61% in the previous quarter.

Construction Equipment Concerns

Supply chain issues have also impacted construction equipment availability, and this is a growing concern for contractors. Not only is rental equipment scarce, but there are long lead times for equipment and parts.

Dodge Data & Analytics

“Concerns about construction equipment cost continue to grow, with a major spike in the percentage of those concerned between 2021 and 2022. In addition, those concerned about cost increases in the next six months exceed those who have been experiencing cost increases so far. This may suggest that we have not reached the peak of concern about rising prices for construction materials,” the report stated.

More than half of respondents said they are planning on spending more on construction equipment over the next six months.